By Andy Bruce
LONDON (Reuters) - The European Central Bank is expected to cut interest rates next week but that won't do much to pull the euro zone economy out of recession, a Reuters poll of 76 economists showed on Thursday.
A narrow majority expected a rate cut of 25 basis points.
But a far larger proportion - nearly two-thirds - say that now is the time for European government to ease up on austerity.
The results of the survey, taken this week, followed dismal economic data suggesting even the euro zone's No.1 economy Germany is starting to wilt.
Senior ECB officials this week have also told Reuters momentum is building for action to help the recession-stricken euro zone.
While the vast majority of economists said cutting the ECB's main refinancing rate from 0.75 percent to a new low of 0.5 percent would not have a big impact on the economy, it would have symbolic value.
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"A cut even only in the refinancing rate could be an important signal," said Kristian Toedtmann, senior economist at DekaBank in Frankfurt. "The pledge to keep policy accommodative for as long as needed could become more credible."
ECB policymaker Joerg Asumussen said on Wednesday the central bank would look at incoming data before taking a decision on interest rates, although he agreed a cut would have only a limited impact.
Recent poor economic indicators persuaded 40 out of 62 economists the burden of austerity is too heavy right now, a view the ECB and German Chancellor Angela Merkel are staunchly against.
"(Easing austerity) seems to be a done deal," said Jean-Louis Mourier, economist at Aurel BGC.
"Except German officials, everybody in Europe seems to agree with the IMF or the OECD position - stay on course to reduce the structural deficits, but let automatic stabilisers play in case of adverse economic conditions."
The remaining 22 disagreed that governments should be put under less pressure to cut debts.
"They can't afford it, they will lose market confidence," said Richard Barwell, senior European economist at RBS.
BANKING UNION
There was also a strong majority - 48 out of 63 - that a banking union is a necessary next step to end the euro zone debt crisis, which has gone on for more than three years.
That was described as a "critically important next step" in stabilising the euro zone by U.S. Federal Reserve official William Dudley on Monday.
"(It's) hard to say wheather this should be the next step. However, in the long run a banking union must be a building stone of a well reformed currency union," said Jens-Oliver Niklasch, senior economist at LBBW.
While a banking union might not happen for many more months or even years, economists expect the ECB will at least take more action to get credit flowing to the small- and medium-sized enterprises (SMEs) that are so crucial to the economy.
Forty-eight out of 65 economists said they expected the central bank to announce such a programme, and probably within three months.
"The ECB has repeatedly emphasised that the credit conditions for SMEs is a key problem. Now is the time to do something about it," said Frank Hansen, senior economist at Danske Bank.
(Polling by Ashrith Doddi and Namrata Anchan Editing by Jeremy Gaunt